Legislators caution energy producers: Clouds of change on horizon

by Mella McEwenMidland Reporter-Telegram

Published 6:00 pm, Monday, March 8, 2010

BIG SPRING - "Everyone in this room knows the importance of energy in the Permian Basin," said Ben Shepperd, executive vice president of the Permian Basin Petroleum Association, as he convened the West Texas Energy Summit in the Dora Roberts Community Center.

Not only is the Permian Basin a leader in oil production "and not far behind in natural gas," but the region leads in wind energy and is developing solar and nuclear energy as well, he told a gathering of state legislators, producers and other interested parties.

State Rep. Joe Heflin told the crowd he wanted a gathering to discuss energy issues, but he wanted to meet face-to-face with oil and natural gas producers. "Ben said let's bring it all in - wind, solar, nuclear," he recounted.

"We want to make sure all phases of energy move forward so our children have work and our grandchildren can stay here so we can play with them," he said.

State Rep. Jim Keffer, chairman of the House Energy Resources Committee, stated, "I don't want to be melodramatic but I feel the oil and gas industry as we know it in Texas is at a crossroads."

Last year, there were bills put in the hopper at the 81st Texas Legislative Session, he said, "that had to do with curbing oil and gas activity," that would give cities and counties more control over when and where drilling could be conducted. Much of those bills stemmed from activity in the Barnett Shale, he noted, and covered a broad spectrum of politics, with "the most liberal Democrat in the House" joined by "the most conservative Republican."

"This is a real issue as far as how the oil and gas industry operates in Texas," Keffer cautioned his audience. "What goes on in the Barnett Shale, whether its 500 miles from your location, the winds are blowing. Change is inevitable but what you need to do as participants and leaders in the industry is make sure you follow best practices, that fairness and good communications happen."

The question, he continued, is how the industry moves forward because "not just your prosperity but the prosperity of Texas depends on having a vibrant, viable oil and gas industry. It takes people in the field talking to their representatives and reminding them how important oil and gas is to the state.

"There are clouds on the horizon, but they're not anything we can't handle with common sense and hard work," he said.

Those clouds extend beyond Texas to the nation's capital, said State Rep. Warren Chisum, who just returned from a visit to Washington.

There, he said, officials are "talking about tax structure. There's a lot of noise in D.C. about changing the tax structure because they claim the oil and gas industry has been given a gift. They're talking about eliminating intangible drilling costs and the depletion allowance."

Refineries, he said, are faced with paying billions to outfit their plants with the capability to refine heavy crudes, and hanging over the industry are the threats of cap-and-trade and regulation of hydraulic fracturing.

"Technology can make things right, but you have to get the regulations right," Chisum said.

Thanks to legislation passed by the Texas House and Texas Senate, said State Rep. Tryon Lewis, incentives were available to help the state attract innovative energy projects, including a clean coal-burning power generating plant planned near Penwell that will capture 90 percent of the carbon dioxide generated by gasifying coal and selling that CO2 to producers for tertiary oil recovery projects. The plant, he said, is undergoing engineering design and could break ground a year from now.

"That's just one technology addressed by these bills," he said.

A similar power plant, the Trailblazer Energy Center, is planned 9 miles outside Sweetwater by Tenaska Inc. Jeff James, the company's director of business development, said although the plant would use pulverized coal technology, it plans to install equipment to capture 85 to 90 percent of the CO2 and is evaluating different CO2 capture technologies. Capturing the CO2 will add $1 billion to the construction costs, he said, and $15 to 20 million more in annual operating costs. To recoup those funds, he said Tenaska hopes to sell the CO2 as a commodity. A 90 percent capture rate, he said, would equal 5.75 million tons of CO2 a year. "For each ton of CO2 injection, you get two barrels of residual oil. That would be 12 million barrels a year. At $75 a barrel, that's $900 million in incremental oil production, so CO2 is a commodity, not a waste."

He said the company hopes to obtain its final air permit this year and line up water supplies for the plant and hopes to announce an equity partner to finance construction soon.

Representing all phases of the electric industry, from generation to transmission and distribution to retailers was John Fainter with the Association of Electric Companies of Texas, who said his clients are working hard to meet growing electric demand from a growing population.

"Texas added 25 million people in the last decade," he said. "With that is a tremendous increase in the use of electricity. We've had to invest tremendous amounts to meet demand, not just residential but small business and industrial users. There is no industry we're trying to recruit to Texas, no industry we're trying to encourage to expand or state in Texas that doesn't require electricity. In 1950, the average size of a house was not quite 1,000 square feet; today it's not quite 2,500 square feet. And just look at all the things around the house that operate on electricity - television sets, plural, PCs, chargers for the cell phone."

There is no silver bullet, he warned that will help his clients more easily provide electricity to meet growing demand. Electricity cannot be generated offshore by cheaper labor, he said; it is consumed as soon as it is manufactured.

The companies he represents, he said, will use renewable sources "but wind and solar are intermittent power sources and I haven't met anyone who doesn't expect, when he turns that switch on the wall, that the lights will come on."

Natural gas will be used as a back-up to assure reliability, he said, and the nation should take advantage of the enormous coal reserves it has and anyone concerned about climate change should support nuclear energy, he said.

"We also need to conserve," he said. "Conservation is the least expensive way to deal with the issues we face."